Purpose Total Return Bond Fund November Commentary

Purpose Total Return Bond Fund November Commentary

Fund Highlights

  • The Fund ended in the red this month as stronger than expected payroll data in the U.S. fueled market expectations for a December rate hike. Despite the prospect for higher rates, the yield curve flattened as the Fed signaled a “dovish hike” and a gradual rise through 2016. All components of the Fund were negative.
  • The Fund increased holdings in high yield bond to ~31%, while decreasing investment grade corporates to 15% and government bonds to 6.5%.
  • With a large cash position, the Fund is very defensively postured in face of the rate hike and will continue this stance until markets start trending upwards.
  • A zero-cost put call strategy was implemented for the Fund, which will provide an extra 10% of upside exposure on high yield bonds should fixed income markets rally significantly.

Market Commentary

Markets consolidated after experiencing heightened volatility over the last 3 months. The terror attack in Paris and the U.S. Thanksgiving holiday gave markets time for pause, especially ahead of an event filled December where the FOMC, ECB and OPEC all have significant meetings to close out the year. In the U.S., payroll data came in stronger than expected which fueled market expectations for a December rate hike. Despite the prospect for higher rates, the yield curve flattened as the Fed signaled a “dovish hike” and a gradual rise through 2016. Canada saw sluggish economic data as cyclical sectors continued to experience a gloomy outlook with no imminent signs of easing. Commodities faced further weakness as crude and copper fell over 10% for the month. In currencies, the loonie fell 2% as the U.S. saw broad strength. European equities outperformed while the Euro sold off near the lows of the year, as markets anticipated further dovish measures from the ECB.

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